On Monday President Trump is expected to to
sign a memo that will initiate an investigation into
intellectual property violations of American companies coming
There is a wrong way and a right way to do this, and Trump plans
on doing it the wrong way — by dredging
up an outdated trade measure from 1974.
It is a measure that will anger China’s leadership at a delicate
time, a time when the US is trying to cool tensions with North
Korea. China is the isolated nation’s most powerful ally and
De-escalating tensions with North Korea while ratcheting
them up with China probably won’t work.
The law Trump plans to use is Section 301 of the US
Trade Act of 1974. Basically it allows him to put a tariff on
country without Congressional approval.
“The law hasn’t been used in 50 years and there’s a good
reason for that,” economist Chad Brown of the Peterson Institute
for International Economics told Business Insider on a phone
call. “We built a brand new trading system so we didn’t have to
use this law.”
That trading system is called the World Trade Organization
— the body formed in 1995 which handles trade disputes between
member nations. Nationalist, protectionist elements of Trump’s
cabinet — like National Trade Council head Peter Navarro and
adviser Steve Bannon — have shown disdain for the body. To them,
it’s a symbol of globalization, and China’s entrance into it in
the 1990s led to the decline of American manufacturing.
But to the rest of the world — as it used to be to the United
States — the WTO helps to support the foundation of a peaceful
world order. And if the Trump administration casts it aside, it
will alarm not only countries the US has an antagonistic
relationship with, but also our allies.
Insider composite (Reuters/KCNA/Rick Wilking)
Now, none of this is to say that Chinese IP violations aren’t an
issue, they are to both US and Eurozone companies. The problem is
that solving the problem would be a lot easier if the US and EU
worked on it together.
“Actually our lives would be a whole lot easier if we were
acting in a way that is collegial,” Brown explained.
Issues like this are about balancing the complicated
interests of US and EU companies that want to tap into China’s
markets. It requires a coordinated effort from countries that
want to see IP theft stopped, the WTO’s rules which make their
grievances legitimate, and Chinese authorities who must adhere to
the rules of the body.
Instead, Trump plans to use section 301, which has only been used
once since 2001. The measure was most commonly used during the
Reagan administration, during which current US Trade
Representative Robert Lighthizer served as deputy trade
The US stopped using Section 301 after allies started
getting mad about what they considered the US’s
“aggressively unilateral” trade policy. That, combined with
the dispute settlement mechanisms the US built into the WTO,
eventually made the law obsolete.
Institute of International
That is, of course, until the Trump administration pledge to buck
not only its own party, but also potentially the world order the
US built, with its protectionist trade policy.
So far, measures as extreme as Section 301 haven’t been taken,
but our allies are watching. The EU has been outspoken about
proposed steel tariffs that could hurt its steelmakers.
, said that she feels that as a
friend of the US, the EU is being “unfairly targeted” and that
“if it hits us like it could, we will of course
That retaliation will likely hit Trump’s base. The
Europeans plan on targeting bourbon from Kentucky and dairy
products from Wisconsin.
They’ve chosen industries that are “vulnerable in the US
and may be able to influence Trump. All countries I’m sure have a
strategy — have a process that works like that,” Brown explained
to Business Insider.
“We turn allies into
China, a target of Trump’s bellicose language about trade
throughout his presidential campaign, has been making
preparations to retaliate against the US in the event of
aggressive action for some time.
Back in January China’s Foreign Ministry spokesman Lu Kang spoke
in a rare, wide-ranging interview in which he warned the Trump
administration against using hot button issues to push its trade
agenda. In that case, he mentioned the One China Policy — the
US’s agreement not to publicly recognize Taiwan as a separate
It could very well be that North Korea is another issue China
would prefer not to have turn into a bargaining chip.
Or perhaps it does. As it stands now, Trump “has no carrot
to offer” if he uses this Section 301, according to Brown.
Beijing is holding the cards. It can pressure North Korea, and it
can retaliate against any tariffs the US puts on its goods. Once
the Trump administration leaves the world of WTO rules, it has to
remember that its on its own.
And that means Beijing doesn’t have to play by the rules